More IRS Compliance Campaigns Announced

August 03, 2018

By Richard J. Shapiro

The IRS Large Business and International Division continues to announce additional audit campaigns under its new issue-based audit approach. On July 2, five additional campaigns were added, now totaling 40. They are as follows:

Restoration of Sequestered AMT Credit Carryforward

This campaign addresses taxpayers improperly restoring the sequestered alternative minimum tax (“AMT”) credit to the subsequent tax year. Refunds issued or applied to a subsequent year’s tax, pursuant to IRC Sec. 168(k)(4), are subject to sequestration and are a permanent loss of refundable credits. Taxpayers may not restore the sequestered amounts to their AMT credit carryforward. “Soft letters” will be mailed to taxpayers identified as making improper restorations of sequestered amounts, and taxpayers will be monitored for subsequent compliance.

S Corporation Distributions

Three issues have been identified relating to S corporation distributions. The first issue occurs when an S corporation fails to report gain upon the distribution of appreciated property to a shareholder. The second issue occurs when an S corporation fails to determine that a distribution, whether in cash or property, is properly taxable as a dividend. The third issue occurs when a shareholder fails to report non-dividend distributions in excess of their stock basis that are subject to taxation.

Virtual Currency

The virtual currency compliance campaign addresses noncompliance related to the use of virtual currency. The IRS announcement notes that U.S. persons are subject to tax on worldwide income from all sources, including transactions involving virtual currency. It further notes that the IRS is not contemplating a voluntary disclosure program specifically to address tax non-compliance involving virtual currency.

Repatriation via Foreign Triangular Reorganizations

This campaign addresses the claimed “tax-free” repatriation of basis and untaxed controlled foreign corporation (“CFC”) earnings following the use of certain foreign triangular reorganization transactions addressed in IRS Notice 2016-73.

Section 965 Transition Tax

This campaign addresses the IRC Sec. 965 transition tax. As a consequence of the Tax Cuts and Jobs Act, IRC Sec. 965 requires United States shareholders to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States. Taxpayers may elect to pay the transition tax in installments over an eight-year period. For some taxpayers, some or all of the tax will be due on their 2017 income tax return. The tax is payable as of the due date of the return (without extensions).

Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has over 35 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.